Q4 2020 Earnings Call
[music].
Good day, ladies and gentlemen, and welcome to the Haemonetics fourth quarter fiscal year 20 conference call one let Kathy.
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I'd now like to hand, the call, but they were to your speaker today. It's all the diet Ma'am you may begin.
Thank you good morning, everyone. Thanks for joining us for Haemonetics fourth quarter fiscal year 20 conference going about cat I'm joined today by Chris time in our CEO and Goldberg our CFO.
This morning, we posted their fourth quarter in fiscal year 20 results are investor relations website, including the analytical people who've been permission to go to for each on this call.
Additionally, we provided a complete piano balance sheet summary statement of cash flows as well as reconciliations of our GAAP to non-GAAP financial results.
Before we get started and most noted otherwise old revenue growth rates discussed today on an organic basis and put it back from currency product in the slide decision strategic advantage depart plasma liquid solution business and divestitures.
As in the past will refer to non-GAAP financial measures through how this coal to help investors understand haemonetics ongoing business performance.
Please note that these measures exclude certain charges and income items.
Please refer to this morning's earnings release for details and excluded items, including comparisons with the same period. This fiscal year 19 in a reconciliation to our GAAP results.
Our remarks today include forward looking statement their actual results may differ materially from MPC Peter results.
Haemonetics cautions that these forward looking statements are subject to risks and uncertainties, including the potential impact from the Corbett 19 pandemic when our results in other factors reference in the season Harbor speed month in our earnings release.
<unk> filings with the FCC, we did not undertake any obligation to update forward looking statements.
And now I'd like to turn it over to Chris.
Thank you and good morning.
For foster with those around the world affected by the Corona virus outbreak, which is first and foremost human tragedy.
We know the pandemic is top of mind I want to begin by thanking or 3000 employees worldwide, who have risen to the challenge of battling this virus, especially our manufacturing supply chain customer service and technical support teams on the front lines they've worked tirelessly sport.
Our customers.
Three brought objectives guide our response to the crisis, our first priority as business continuity and employee health and safety.
All of our plants and distribution centers are home from an operational with enhanced safety protocols and we're committed to high service levels as our teams drive supply chain resilience.
A few exceptions the vast majority of our products continue to be shipped on time, and we have ample inventory to meet our commitments.
Our second priority is preserving cash we are making pragmatic decisions around contingencies and expense controls for what could be a protracted recovery.
Our strong balance sheet allows us to fund important programs.
Our third priority is driving growth with a through cycle mindset.
We are real building critical capabilities and looking for new opportunities.
Last month, we welcomed Miller Lingling, Andy as Chief Technology Officer to lead our innovation agenda, and we added Mike Coyle to our board a proven executive with extensive global Medtech expertise.
The operational excellence program remains essential to our turn around and progress to date has equipped our manufacturing and supply teams to overcome the challenges of the pandemic.
These objectives guide our planning across three time horizons in the immediate situation. We are focused on continuity. We created an integrated nerve center to manage day to day and make targeted interventions. We are prioritizing employee safety with remote work and travel restrictions and limiting exposure or from.
Shrink and field service teams.
We've taken steps to provide supply chain continuity by optimizing production distribution and logistics with increased emphasis on inventory planning and supplier engagement all to ensure supply and services for our health care customers.
Our technology is being used to fight the virus head on the views have launched segment and geography specific initiatives in response to the crisis, we are leveraging digital channels for training and implementation to shrink the distance between us and our customers growing lockdown the.
The company is also supporting frontline health workers first responders and families through philanthropic donations.
Our product segments are shifting to recovery with markets in Asia, and parts of North American Europe, reopening, but recovery could be protracted and disrupted with research chances and lockdowns.
We are scenario planning to identify milestones and market indicators to procedures and collections in our product segments and geographies demand for our products is highly resilient, but may fluctuate as the situation evolves.
In the new normal there'll be opportunity for strong players are value drivers are enduring and will enable us to thrive we are exploring potential risks and opportunities from reforms in market restructuring to understand how our customers health care and society will change.
Our robust product portfolio and strong financial health position us to adapt to the changing market conditions drive results complete our turnaround and accelerate transformational growth.
Today, we reported organic revenue growth of 0.7% in the fourth quarter and 6.3% for fiscal 20.
Adjusted earnings per share were up 13% in the quarter and 38% for the year.
Cobot 19, how to limit the effect on our fiscal 2000 performance up to two months in China and parts of Asia, and two weeks elsewhere, including the U.S. and Europe.
The positive finished this 20 is evidence that the steps we've taken over the past four years have strengthened haemonetics to improve our trajectory.
Turning now to our business units.
Plasma revenue grew 11.7% in the quarter and 13.8% in fiscal 2000, roughly the midpoint of our 13% to 15% guidance.
North America accounts for 93% of plasma revenue and grew 12.5% in the quarter and 14.4% in fiscal 20 on favorable volume and price.
Collection volume increased in line with our expectation of high single digit growth in the second half.
Cobot 19 impact was limited to disposable sales in the final two weeks of the quarter in North America and Europe.
Our liquids solution sales were impacted by customers transitioning to alternative sources of supply and there is excluded from organic revenue results given our decision to exit the business.
Software revenue was flat in the quarter, but helped our full year growth rate by 100 basis points due to next link conversions in contract amendments in previous quarters.
Nearly 10 million, yes collections have yield at 230000 incremental leaders of plasma.
The value proposition of increased plasma yield center efficiency donor safety and satisfaction is proven and more relevant than ever as customers seek productivity and enhance safety.
Our customers want to increase collections.
To keep pace with global demand for plasma derived products and we're confident in the projected 8% to 10% long term growth rate.
During the cold 19 locked down in April our collections were 25% to 30% below prior year.
Stay at home orders and donor safety concerns combined with reduced donor collection capacity due to shutdowns and social distancing requirements. The closing of college campuses restricted border travel and less availability of public transportation impeded collections.
Our customers are responding we are now in what we expect will be a protracted recovery period. The recovery will be characterized by ongoing improvement in the factors that impacted our April results, including recessionary pressures that it historically contributed to greater donor availability.
Post recovery, the new normal will be different and we look forward to being able to help our customers accelerate their collections to replenish depleted plasma inventories.
Moving to hospital revenue was up to 0.3% in the quarter and 7.5% in fiscal 20 below our guidance range of 11% to 13% after strong sequential performance throughout the year growth was impacted in the fourth quarter by cobot 19 related declines in procedures restricted access.
For sales teams and reallocation of funds to critical I see I see you needs within hospitals.
The impact was felt mostly in China, where revenue declined by approximately 50% in the quarter due to the effects of the outbreak beginning in early February.
To covert 19 impact in our western markets occurred later in the quarter and therefore is not as pronounced.
Excluding the estimated impact of coded 19 hospital delivered strong growth driven by new product launches and strong sales execution that was inline with our expectations for the year.
Hemostasis management revenue was up 2.8% in the quarter and 13.5% in fiscal 20 below our guidance range of 16% due to cobot 19 impacts North America. The biggest market for Hemostasis management grew 20% in the quarter and we're very.
Very encouraged by that contribution from our launches and the overall demand for verso elastic testing.
We will continue to invest in this business to drive expanded use in different hospital and outpatient settings.
In April we acquired Anacor and their clock chloro technology to strengthen our offering across lab based and site of care testing.
Plot pro has more asset base than any other visio elastic device on the market and a proprietary active tip technology that eliminates reagent handling to reduce the potential for.
It is currently available in select European and Asia Pacific markets, We believe clot pro will strengthen our leadership in markets we serve.
Cell salvage and transportation management were down 1.8% in the quarter and up 2.4% for the year.
Transfusion management demonstrated strong performance with mid teens growth in both the quarter end the year on strong growth from both Bloodtrack and Safetrace, TX, including a record quarter for bookings in North America.
Relative to our other product lines to covert impact was smaller as we currently don't offer these products in China.
We continue to be encouraged by customer enthusiasm and the market opportunity for our next generation software.
Cell salvage to continued to be challenged throughout year. The business was down by double digits in the quarter, mostly due to cobot 19 related declines in elective procedures and reduced capital sales in China, the cobot impact compounded ongoing competitive challenges and unfavorable.
Unfavorable capital cycle for the business, leading to a single digit decline for fiscal 2000.
Regarding the effective cobot 19 in April across the three hospital product lines, we saw a range of 10% to 30% revenue decline.
There was a difference between disposables capital and the different geographies, which make it difficult to extrapolate these figures to any one pattern.
Cell saver is more subject to procedure declines were as peg shortfalls as a result of procedure declines have been partially offset by utilization in critical care diagnostic procedures.
We believe both peg and cell saver disposable volume will track to the recovery of elective procedures. In addition capital equipment is subject to purchasing cycles, but we have seen early demand for tagging the west and we're seeing some recovery for cell saver in Asia.
Transition transfusion management has a more consistent revenue stream, but the sales and installation process is more difficult to do without access to the hospitals.
Despite these temporary challenges we view the TEG business as a growth engine for Haemonetics long term and have robust plans to expand our presence. We believe the cobot 90 impact will continue to be fluid as we work through recovery, but the end market for our hospital portfolio is inherently strong and will normalize.
As hospitals to address the backlog of elective procedures, coupled with the return of Nonruling elective procedures to pre cobot levels.
We are assisting researchers in the investigation of Cobot 19 associated Coagulopathy and its thrombotic complications Bloodtrack software is deployed in several remote hospital sites to ensure a blood products are distributed safely while in the U.S. Safetrace, TX is used to manage convalescent plasma.
As an inventory item in addition to its core use to manage flood back inventory.
Blood Center was down 10% in the quarter and 3% in fiscal 2000 above our guidance range of negative 4% to 6% we have a strong presence in Asia, and Europe, where the net impact on our fourth quarter results from the Corona virus outbreak was minimal.
After initial disruption in a handful of highly impacted areas, we experienced a rapid spike in demand as blood collector sought to replenish their blood product inventories and safety stocks.
April rhesus revenue was down 8% in the quarter, primarily due to unfavorable order timing and competitive losses, we called out last quarter.
We expect this business lost to result in a 17 million dollar revenue headwind in fiscal 21.
Japan experienced another quarter of growth due to strong sales of our plasma products as we increased and maintain share due to technological issues with a competitor device.
Partially offset by continuous shift towards double dose platelet collections.
Fiscal 2008 for research revenue was flat as strength in Japan, partially offset some weakness is caused by order timing and customer transition.
Whole blood revenue was down 12% in the quarter on unfavorable order timing among our distributors the 6% decline in fiscal 2000 includes previously discontinued customer contracts and ongoing declines in blood utilization rates.
Software revenue was down double digits in the quarter and fiscal 2000, primarily due to previously discontinued customer contracts.
In response to the pandemic, we are engaging with blood center customers in more than 20 countries to help them collect convalescent plasma to treat cobot 19.
Paul This is unlikely to be a significant commercial opportunity for us given the limited pool of donors in a tight window for recovered donor eligibility. We will continue to prioritize these efforts as our Mcs plus and Pcis devices are the standard for plasma a freezes.
As the year progresses, we could experience a greater overall impact on blood center revenue caused by imbalances in the supply and demand for blood products. However, we expect the demand for blood from normalize to procedure volume.
Blood centers will continue to be challenged on price and utilization rates. However, our customer focused innovation SK you rationalization and the early successes of our operational excellence program support our aspiration of stable operating income contribution from this business.
I'll now turn call over to Bill.
Thanks, Chris Good morning, everyone.
Will begin this morning by briefly discussing our fourth quarter fiscal 20 results.
Then I'll focus on the strength of our balance our capital allocation priorities in the financial axles caretaking.
Chris has already discussed revenue so I'll start with adjusted gross margin, which was 50.3% in the fourth quarter.
And 51.6% for fiscal 2000 improvement of 320, 410 basis points, respectively, compared with the prior year.
Consistent with the first nine months of fiscal 2000. The main drivers of this expansion, we're productivity savings firms complexity reduction initiatives on the operational excellence program product mix on pricing.
Adjusted operating expenses in the fourth quarter was $72.7 million, a decrease of $2 million or 3% complete with the prior year.
Adjusted operating expenses for fiscal 20 with $292.8 million essentially flat when compared with the prior year.
And as a percentage of revenue were 29.6% a decrease of 80 basis points.
We continue to realize productivity savings of hyper research and development cost for the fiscal 2000.
As we completed some of our clinical trials to club.
These lower costs were partially offset by additional investments in sales and marketing mainly in our hospital business.
Fourth quarter, adjusted operating income of $47.3 million increased $4.5 million or 11% compared with the prior year.
And for fiscal 20 was $218 million, an increase of $53 million for 32%.
Adjusted operating margins were 19.8% in the fourth quarter and 22% for fiscal 2000 and expansion of 270 490 basis points, respectively, compared with the same carriers in fiscal 2019.
Inline with our guidance for the year.
Our adjusted income tax rate was 18% in the fourth quarter and 15% in fiscal 2000, compared with 22% and 18% in the same clears osisko mining.
The lower adjusted tax rate in fiscal 20 was due to the benefit of hires there vestings an option exercises primarily in the first half of this fiscal year.
Our fourth quarter adjusted earnings per diluted share was 69 cents compared to 61 cents of the prior year, an increase of eight cents or 13%.
Given the timing of the coded 19 pandemic and its progressive during the fourth quarter, we experienced a limited financial impact.
Lower hospital revenue and the cost of direct actions, we took to protect our customer facing policemen employees and those employees and our manufacturing distribution facilities were partially offset by savings and travel and other operating expenses.
We estimate, but the net impact of Covance 19 in the fourth quarter was approximately six cents on our adjusted earnings per diluted share, including a 70 basis point and hundred 20 basis point impact on our adjusted gross and operating margins respectively.
Adjusted earnings per diluted share in fiscal 2000 was 3031 cents in was within our guidance range as $3 and 30 to 2040 cents.
When compared with fiscal 19, our adjusted earnings per share increased by 92 cents or 38%.
Before I move on I want to point out that are complexity reduction initiative has been successfully completed.
As a reminder, this program is an important step in our turnaround has contributed meaningfully to the expansion of our margins and created a more agile performance driven culture.
Any additional productivity savings going forward will be achieved by executing on our operational excellence program, which will continue to be primarily but not exclusively focused on cost of goods sold.
Free cash flow before restructuring and turnaround costs was $139 billion in fiscal 2000.
Pad was $71 million in fiscal my team well within our guidance range $125 million to $150 million.
The higher free cash flow Cisco 20 is the result of lower capital expenditures related to the plasma capacity expansions in the prior year, partially offset by a higher use of working capital in fiscal 2000.
The working capital cash outflow in fiscal 2000 was $85 million and was primarily related to increased inventory, which included continued manufacturing lexus devices and to build and disposable safety stock.
We have a strong balance sheet and our cash on hand at fiscal year end was $137 million.
We have an existing credit facility of $700 billion that does not mature until the first quarter of fiscal 2004.
Total debt outstanding under the facility at the end of fiscal 2000 was $384 million.
Split between our remaining term loan balance of $324 million and borrowings under our revolving credit line $60 million.
The majority of the principal payments a weighted towards the end of the term.
In April we drew down an additional $150 million on the revolving credit line, which bolsters our existing cash on hand to nearly $300 million.
After this drawdown, we have an additional $140 million remaining on our revolving credit line.
Our EBITDA leverage ratio remains low even after the drawdown.
Our capital allocation patterns are clear and remain unchanged, we will continue to invest in our business as a bias towards organic growth and innovation that will continue to expand our commercial capabilities.
And we'll remain opportunistic with M&A and serve repurchases.
While our commitment to our shareholders will continue to be an important element of our capital allocation strategy in fiscal 2001, our priority, we focused on providing appropriate levels of funding across our organization.
And ensuring we are well equipped to address any challenges that may arise over the course at this pandemic.
In fiscal 20, we repurchased a total of $175 million of our centers and we now have $25 billion remaining on our current share repurchase authorization of up to $500 million.
At this time, we do not foresee repurchasing shares in the first half of fiscal 21, and we will continue to be disciplined in our approach to ensure adequate cash on hand.
Over the last three years, we have repurchased nearly 4.5 million shares which is about 9% of our total shares outstanding.
We are pleased with our financial health and our fiscal 20 results. However, due to the continued uncertainty caused by cobot 19.
Including its duration and the potential impacts on our business, we're not providing our fiscal 21 guidance today.
Also we are not reaffirming our previous comments on our fiscal 2001 aspirations of doubling fiscal 2016, adjusted operating income and quadrupling fiscal 2016 free cash flow before restructuring and turnaround costs.
We will continue to provide additional updates as needed and we intend to issue our fiscal 21 guidance later in the year.
We are focused on preserving cash and have implemented a number of actions on our expenses to help protect cash flow and allocate capital.
Some of these actions are focused on operating expenses and include restricting travel reducing nonessential spending in delaying some compensation related items.
Other actions include inventory management, and revealing capital projects and the associated costs.
We remain committed to our growth objectives and have not changed our investment thesis related to our innovation agenda.
While the current environment remains uncertain, we are prudent planning for a variety of different financial scenarios related to the pad Bennett.
We are deeply engaged in this scenario modeling that evaluates different business impacts based on this recovery and we are prepared to implement additional measures or change the course of action on those initiated if needed.
We are confident that our discipline and thoughtful approach to financial decisions and capital allocation priorities, coupled with our strong liquidity balance sheet will enable us to emerge from the current environment as a stronger company.
In summary, I would like to conclude with some closing thoughts.
Our strong fourth quarter in fiscal 2000 results are evidence that our strategy is working and we are on track to complete the turnaround this year.
The fourth quarter impact of Cobot 19 was minimal however, the first quarter impact will be meaningful, but it's difficult to quantify.
Certain nature and timing of the recovery.
Our pandemic response has been a sector and guided by business continuity employee safety class preservation on the through cycle mindset.
We are scenario planning so what we believe will be a protracted recovery and intend to issue guidance later this year.
We are well positioned to adapt to changing market conditions to drive results to complete the turnaround and to accelerate growth.
Our value drivers are enduring and position us well for new normal with renewed momentum post recovery.
And now I'd like to turn the call back to the operator for killing it.
Thank you ladies and gentlemen, if you have a question at this time. Please press the star followed by the number one key on your Touchtone telephone. If your question has been answered or you wish or move yourself from the Q. Please press the pound key once again to ask a question. Please press Star then one now.
And our first question comes from David Lewis from Morgan Stanley. Your line is open.
Good morning, Thanks for taking the question just a few for me. This morning team. So the first thing is I appreciate the commentary around the impact in April It does sound like you sort of bounced off the trough you most classic medical device company, you're talking about kind of a return to normalcy you really over the next two key.
Order something around sort of a fourth calendar quarter. The year, we give you some type of normalcy I just wonder how you would react to that kind of relative recovery that add up a couple of follow ups.
Yeah, David it's Chris Thanks for the question.
It's actually set forth to.
Very different macro scenarios, the first of which looks a lot like what you described a second which factors and the possible resurgence.
In the fall as some experts are predicting and kind of this episodic.
Toggling between opening and closing of markets as we get ample testing et cetera. The reality is and just take a step back and a little bit Liberty with your question. The reality is for us.
You know, we need three things to happen.
And the macro matters.
But it matters much more at the segment and geographic.
Level for us for the first of those three things is fully 80% of our revenue is tied to collection.
<unk> be they the 500 million that we book in plus.
Small or the $300 million associated with our blood Center business.
What we need to deliver fully against that business is to have a safe collection environment, where donors of all else feel comfortable making their donation and I feel like in many regards we're we're moving rapidly into that recovery now we can talk more about the nuance.
With that but that's the first point than it is 80% of what.
We do the remaining 20% is tied to our hot.
Hospital business worldwide, and disproportionately we threw TEG cell salvage and transfusion management tie to non elective procedures cardiovascular and trauma.
Our big drivers and health care systems.
Returned to some semblance of normalcy people go and get the necessary medical care that they need our markets will recover rapidly associated with that.
Third point, it's a bit of an overlay, but the reality is U.S. is two thirds of what we do but it is substantially you know 100% of our growth engine going forward, particularly plasma and TEG.
And we need a healthy recovery in the U.S., it's actually disproportionately important to us returning to accelerated growth. So those three factors drive us and yeah. I think you know bedding person you can choose between the two scenarios, we outline, but we're going to work on the assumption that were in that first scenario and then adjusted.
Accordingly.
Okay, just two more for me I'll ask them upfront here.
So Chris you.
How do you think overnight teams going to impact to your customers Im just curious I want to focus on one just if you could touch it all down.
Sure a positive koby patients in terms of fear and placer donation speaking thats going to be a material driver or frankly, just and not really are that material and the second probably more important news you how does the cobot environment impact customers desire to adopt Nexus I'm actually like I can make a pro case at that time case for why this is a good environment for the adoption Nexus amongst them.
Large customers just curious strategically in those two thoughts and then for bill.
Takes any update on this year I just wonder if you can update us on the yeah, we plan and how or where you are in that plan and how cobot.
The impact that plan here over the balance of 21.
Thanks, so much.
Thanks, There really plasma plays a role up three potential roles in the treatment of Cobot 19, there is ongoing trial work in some interest in just straight application of Ivy I cheap.
Particularly to severe cases to just help as a spike the immune response and the tamped down to some of the over response see I'm sorry, that's one piece.
As a second piece, which has gotten a lot of press, which is the use of convalescent plasma for us as we noted in our prepared remarks, that's typically been gone more with our blood center and a select number of hospitals.
We view that initially as a philanthropic initiative, we've made very clear our intent to help wherever and whenever we can as we talked about it. We're in active forms of engagement in 20 different countries around the world on convalescent plasma I think the third piece, which is probably the most ground that scientifically is the notion of.
They hyper immune globulin.
Whereby they take convalescent plasma and they work through the antibodies and essentially create a drug if human plasma and then administered with that in a more targeted dosing.
That we see different press releases around that that could be as early as mid summer probably early fall is more likely.
That's probably because the one that has the most scientific backing behind it but we're happy to participate.
Page in all three.
We don't think given the restrictions around what qualifies the owner that they will be material impacts, but we're delighted to be a part of it. It's one of the way so our technologies being used to fight virus head on in terms of your question about Nexus the Nexus value proposition now at 10 million collections is nothing short of outstanding.
Oh, we're we're talking about meaningful improvement in the reduction of cost per liter, we're talking about meaningful improvement in yields cycle time donor satisfaction and compliance and in an environment, where our collectors desperately need to increase the throughput in their centers, we think the value proposition is stronger than ever we see that.
And the converted customer base and their relative performance. So we're excited about it obviously, making conversions in this environment.
Even more challenging however, we're doing it and I and we feel good about our ability to do so in a safe and effective manner. So.
No we intend to continue to push ahead with Nexus and I think our value proposition just got stronger.
Hey, David It's Bill just saw your other question on our two savings programs first on complexity reduction, yes that program was completed we haven't talked about it much in this fiscal year, because mostly actions undertaken now were undertaken already so the the savings was came through as planned and we delivered our.
You know 80 millionish of savings that we committed to.
In terms of the only program, we're still driving over all the planned initiatives related to that program and we still are committed to meeting the savings up as planned.
Remember that is a four year program overall.
I did say my prepared remarks that we're taking some actions against expenses, we are making sure that we're not taking actions on expenses that would drive these savings going forward.
And in terms of communicating the plan savings or not you know we thought it was an $80 million program with the majority of the savings dropping through to the bottom line.
In or at some point when we issued guidance, we will give an update of exactly what the savings are both on gross and net that are coming through the P and plan to come to the piano for Hep why 21.
Great. Thanks, so much.
Thanks, David.
Thank you Sir our next question comes from Larry equates from Raymond James Your line is open.
Thank you good morning, everyone I'm just at just two for me I'm first Chris I'm, obviously plasma collections are extremely important to to the businesses as you've noted.
I know that that you know humid acts as an organization is there and ready to be supportive of those collect actions and what needs to be done there, but what do you think will be the response by the actual collectors and.
[noise] and putting in plans to try to increase.
They're collection volumes because it sounds like you know their inventory levels are are clearly dropping so how do you think they respond.
Which ultimately translates into it to volumes going back up for you guys.
Thanks, Larry for the question I think their response is already well underway they need them and we feel very good about our projection of 8% to 10% collection volume as a need to meet the ongoing demand. So.
Anything that they don't collect here in this trough period as you guys described it.
Needs to be made up going forward really there are three factors that we and they are dealing with there is the macro environment, which is just to stay at home orders.
The students not being in school on college campuses that those collection centers restricted travel across the border real and perceived and then the less reduced availability of public transportation, we see movement in all those and that's a positive because that creates the underlying flow.
The centers themselves and how they manage their capacity some some centers shutdown in April all are in the process of reopening at this point now in non U.S. at least.
The cleaning protocols, which is not a big and adamant that drives the psychological effect do we lose any capacity there or not it doesn't appear so social distancing requirements, which are quite real and we have centers that have taken beds out or reconfigure. The beds were erecting partitions et cetera, all to comply.
Separately with social distances. The combination of those things is what drives donor psychology, and a sense of safe <unk> associated with with the actual donation itself.
Hold with economic motivation right, we are facing a deep recessionary period historically as we said in our prepared remarks, that's driven donor propensity and ER and we expect that would be a case here too as well.
Okay. So I guess the punch line there is that sounds like again sort of probably hit the trough and.
You know hopefully were starting to see all those variety of comments that you made start to move in.
You know the right direction relative to where we were.
Yeah, and as all of our customers have that same or at that same bias and we stand ready to help them do so okay. Great and then just one for bill recognizing that you are not providing.
Guidance for fiscal 21 at this point and you certainly referenced a variety of scenarios that that may play out here.
What has to happen for you guys to feel comfortable a in providing guidance. You clearly stated that you expect to later in the year, but just curious what what actually needs to happen for you to get that confidence to be able to provide the guidance.
Well I think you know eat in what Chris just talked about Larry you know it's in each of those business units that we have we have certain.
Guide posts or milestones are key things that we're keeping an eye on only need to get comfortable that the the revenues that were seeing associated with each of those milestones starts to change right and we're seeing that already.
But we need to see some trend over time now also Chris had spoken about some of the greater macroeconomic factors right. If the economy opens back up and some outbreak happens again with cope with 19 and that sets back. The you know the the whole world of the United States in particular.
And then that would impact the guidance too. So for me, it's more about a predictable revenue trend right when you're looking at doing forecasts overall predictability as most importantly, we don't want to we don't want to guide and then have this thing or.
Blow up against we want to be pretty comfortable with the numbers that we provide at some point.
Okay very good thank you very much yep.
Thank you.
Our next question comes from Anthony Petrone from Jefferies. Your line is open.
Oh, Thanks, and I hope everyone is healthy staying safe few questions for me.
One would be on.
Blood plasma and just as it relates to Corona virus.
Chris You mentioned, a hyper immune globulin I'm, just wondering what does the potential for that product potentially be seasonal.
And if indeed, it does become the seasonal product what do you think that that does overall for plasma kits demand. So maybe the first one and then.
The second one on just cobot implications, just just a little bit more on the blood center side of things you know how substantial was the head exiting March Justin in blood donation volumes and where are we in April and then we'll have one quick follow up thanks.
Yeah, Thanks, Anthony I hope, you're well with regard to the hyper immune that this is certainly the area the.
The leading plasma fractionators, our most enthusiastic about they feel like this is one area.
Science courts nicely and as I said, there's there's perhaps different time horizons as early as July we've seen some releases and then other saying early fall but.
What this will bring to the market the actual sizing the opportunity. It's it's really viewed more as a bridge to an eventual vaccine now lofton published about this we have other corona viruses that have been in society for a decade or longer where we do not have vaccines. The vaccine science is difficult.
Let's say the least so I think what I've heard to date and it really is to start playing back our conversations with our customers and everything we tried to read and how we tap our scientific Advisory Committee for input. What we're hearing is hyper immune globulin, largely as a bridge to vaccine.
Experts, but I think over the next 912 months could be an exciting bridge is a guess how we're thinking about that.
In terms of the blood Center business.
She said you know, we we were pretty sizeable business in Asia, China, Korea, and Japan, particularly and they were hit hard early on you know dropping collection volumes of you know north of 50 per cent five zero most of that business, particularly in China is gone through distributors.
So the onset of the Chinese new year had an effect a bunch of distributors looking to buy and before they close for the Chinese new year. So it somewhat masks the actual impacts Japan solid direct dip and then a rapid recovery they were relatively corporate free at that point and they you know.
Japanese Red Cross put out a call or I'm, particularly red cells and platelets in their population responded nicely and that's actually what we're seeing globally.
Patients or sorry donors want to contribute the altruistic a tendency is outstanding to watch and we see that in each and every market. We've gone now we see a step further which is I think the shock to the system, which is not a surprise, but it's it's intimidating when you experience.
Has motivated blood collectors worldwide <unk> their safety stocks, so we and the other manufacturers are working through this real time trying to regulate how much additional supply we give we could actually be run things significantly hotter than we are but we don't want to completely disrupted.
Slide demand balance, but all of our blood center customers have now notified us that they intend to increase their blood stocks to a six month safety like we'll get them there, but it'll take the next two quarters do so.
That's helpful and Bill just the last one for me would be you know and the costs programs.
And update in on on where we are specifically to the second restructuring programming.
Just get in the uncertainties out there can any of that program be accelerated or delayed and just maybe an update on where you on that program and and and how it plays out just giving the coven impacts thanks, again and everyone Stacey.
Thanks, Yeah on the on the.
Operational excellent program like I said that David Lewis like we are still planning on delivering all the savings there. We started to program back in in August on the you know our journey to get to 80 million plus I'd savings. Our intent is still to go as fast as possible with all the independent.
Projects that encompassed delivering a significant amount of up savings. The organization is all mobilized <unk>.
We have no time stuff pulling back on these savings either keep programmers to continue to drive.
Deep gross margin improvements in operating margin improvements I think that we're all all expecting like I said, we will update again you know when me is for guidance at some point will give specifics about what the savings would be in F.Y.
We'll go year by year after that and that's you know, we see some movement up or down and and we feel like we can change. The overall guide to the program opens at that point, but yeah, well with full speed ahead with this program was still very optimistic about it.
Thanks again.
Thanks happening.
Until our next question I'm trying to Dave carefully from J.N.P. airline is okay.
Oh, great. Thanks, Chris you mentioned the the acquisition.
Was wanting to get maybe give us a little color <unk>, maybe how that will interact with pagan peg success.
Yeah. Thanks to appreciate that hopefully well the with regards to and a core and the clock Pro technology. This is a an active tip product. It's essentially a really really nice complement to our existing tag six s. business.
We imagine it over time displacing the tag 5000, particularly you know lab space setting. It was developed by an individual and a team that have you know just deep roots in in the so elastic passing a way of C.E. Mark approval for Europe button, the number of important Asia.
Specific markets, we will work that team to get the U.S.F.D.A. approval and expand off of that base and we're increasingly just looking at hemostasis management in the landscape. There. So it was a real opportunity for US we've talked in the past we believe it's a 500 million dollar market opportunity and tone.
Oh that expands with you know the acquisition of our Nonhospital based rights from core amid the originators from tag. So this is kind of a one to combination that opens up the aperture outside the hospital for us and sight of care and a core itself brings us even more squarely into the lab space with a.
State of the our product that's a low cost to manufacture and has been necessary support. So we're hopeful. This is she oh, how we drive against what will be a $500 million plus opportunity for us to manage it as an integrated portfolio in hospital.
I basically I, just one quick far up.
It sounds like you don't have any supply tennis shoes, and I don't believe you have any facilities in China, but I was wondering if you could just comment quickly on the big ones that you do have and maybe where capacity is at this point are are you running at 100% or close across the globe.
Thank you yeah. So we we've you know I think the progress we've made in our corporate turn around over.
For the last four years has equipped us to respond to this cold, but crisis as as admirably as we have tremendous respect for global manufacturing and supply chain colleagues are global business service colleagues. These are frontline workers, who are out there.
You know they can't shelter in place, they're they're responding to the call we have six.
<unk> facilities worldwide.
All six operational we've had our experience with coat.
You know detailed protocols for how we address it.
So.
Say you.
They are 100% operational actual capacity varies depending on you know in Malaysia, where we have restrictions around how many folks were allowed to have it working which folks were allowed to have similar challenges in Tijuana and interesting factor is between those two sites, 70% of our employment base is female and.
Obviously for pregnant women their specific concerns that we're doing a bunch of monitoring and testing we have temperature readings at all of our sites for our three North American manufacturing sites, a U.S. sites. We're we're in good shape and that's where the bulk of our Glassman productions coming from you know we're we're at full can.
And we feel great about that we are also able to continue our tech service and customer support including the feel base work that we do our people are trained are equipped with P.B., they're able to go in and they've been given a central worker status to be able to keep our network of of equipment up in operational worldwide. So.
They daily Challenge I mentioned to prepare remark that we have this integrated nerve center that that makes daily in reviews. This but I've been really really impressed humbled by by the organizations response to this is the nothing short of outstanding.
They stay healthy.
<unk>. Our next question comes from Larry Fellow from C.J.F. Kennedy airline open.
Greg Good morning, and I Echo the well wishes to everybody in your family well.
Just.
Had been and <unk> just a couple of maybe on the the plasma and you know hopefully over recovery hopefully, whereas you said.
And that stage.
Then maybe a little bit of granularity regionally you know just to sort of give us a little more confidence in potential recovery other words clearly a.
<unk> want to go donate and they're not been able to donate.
Say, Brooklyn, New York, or wherever where there's just you know crazy outbreaks in front of hours going on but.
Areas of the country, where it hasn't been so bad.
Do you know have things been considerably better that gives you some competent but as we get to as things started to get Lax. Then don't are competent improve things will you know rapidly rach up.
Yeah, <unk>, well with you and your family, but we we segment. This it's not a segmentation that we're going to provide going forward because it gets a little too close for.
For comfort for our customers, but we absolutely look at differences by customer and they've taken different responses and we look at differences by type of collection center. There are absolutely effects as it pertains to hot spots et cetera. The reality is the the collections in the U.S. or concentrate it.
Largely south and east in the country and and you know to date at based Fortunately have not been at the absolute no hot spots. That's not an entire is not not properly truth that there are counties. There are cities et cetera, but in the main course, we don't see a lot of collection in the northeast for example, right what we have.
Done as we look very carefully to account for this.
Stay at home orders, what's the nature of the order what effect he said having psychologically on the donor base you know the owners are extent, they're considered essential.
And they have no we can give them letters for safe passage that says can our plasma customers. So in all cases, they have the ability to stay at home water does have a psychological effect college campuses right in college campuses are not in session. The students are home students are still here, but there are propensity to donate is less at home.
And it would be on campus. The collection centers are still all been on those college campuses, but they're meaningfully lower capacity utilization nobody around away.
The border site sprite, not not all but some of our customers have meaningful sites. Along for example, the Mexico border individuals are allowed to travel across the border and donate however, the early interpretation to that was mixed and folks thought they were required to self quarantine there were some.
Colleges, where certain U.S. sites to work more accepting immigrant donors et cetera. The vast majority of that has been correct. It for.
It's a challenge and and as all these things and I I.
One of the board of having met I said in these discussions each about each company has had to deal with this on a geographic basis down to the local municipality.
Terms of determining yeah. This is essential and then we have rights to do this and here's how we're going to do it in a safe and effective manner. So we've worked through that the other factors new centres right new centres that happened yet established themselves and their local community, we see an impact on though so when when bill talks about scenario planning, we do think.
Macro level, particularly on you know lockdown stay at home et cetera, but we're also very micro about what what me for the individual collection centres. Their 800 collection centres in U.S., we have them categorized as such it's what gives us confidence that the recovery is already underway, however, and it'll be step wise.
And there will be setbacks, and we episodic and we stand ready to help our customers managed through it but and when we get to the other side candidly. It won't look like it did six months ago right. There will be a new normal that will be different.
As I said, I think that reinforces our value proposition to the industry, but we'll say and we'll work our way through that.
<unk> tend to themselves and I realize you're not running that center and then maybe they have to speak for themselves, but I imagine have.
Evolving and different adaptive measures I mean as soon as some of them are staying <unk> you know have to have less the owners in in the facility at any given time, let's employees and maybe they can even offer more.
Negative way more cash payment Lord donors in I guess the goal leverage that don't really concerned you <unk> indirectly would yeah.
They concern is quite a bit right, we we ourselves as partners to the industry and the most important thing in that regard is the donor psychology, you know do they feel safe and properly compensated for their for their donation and I think we can we can help with that quite a materially for example, you know so.
Off where applications under way to help with no you don't want one of the ways that they practice safe social distancing, despite not having a large queue up donors in their lobby. So a number of our customers. For example, who didn't previously use appointments systems are moving to an appointment system, we have applications to help with that.
Owners, who show up are asked to remain for example in their car or outside if they have that option, how they know and and you can they get called forward you know using digital technology to to make the experience interactive even if it's not.
Close physical contact so there's a bunch of ways to help make that happen as well as you know practicing social distancing within the centers, how the spread them out et cetera, which is my reference to a new normal I think some of that will persist right long after worlds figured out inappropriate scientific response to cope with 19 and we're we're we're.
Sunset thrown out when we're thinking about structural changes and regulatory changes that may or may stay beyond natural outbreak and how do we help on customers to that that process.
Great I appreciate the thuc. Thanks.
Thanks.
Thank you I'm next question <unk>, some even then company headlines open.
Hi, Thanks for taking my question I guess I just wanted to start on they can statement. So you know I was where if you get help us out in terms of thinking about the impact of potentially sizeable grabbing a decline. So gross margin and then in addition, just when you <unk> how much it out it's fixed how much it variable.
Oh.
Okay, Mike So it's bell hey on on the revenue piece <unk> the largest portion of the revenue in Packers in Hock Grunting, Chris has gone gone through that what what we did quantify where two things we quantify the impact on E.P.S. So.
P.S. over always said was about six cent impact.
It would be a combination of the gross margin drop through from the revenue as well as some expenses that we encouraged to basically keep our employees safe across the globe, we're coming to work every day and keeping us up and running.
We haven't we haven't say exactly what the gross margin impact on the revenues are with the revenue dollars are but we did say on basis points that we had a bug.
[laughter].
[laughter].